What Is Unfair?


Updated UDAAP Focus

The CFPB has increased its focus on unfair discrimination in the financial markets.  It has published an updated exam manual for evaluating UDAAPs for both deposit and loan products.  In examinations, the CFPB will be looking at financial institutions decision making in advertising, pricing, and other areas to ensure that institutions are appropriately testing for and eliminating illegal discrimination.

In a March 16 blog post, the CFPB stated that it will “examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits. Discriminatory practices will fall under “unfairness” in the UDAAPs umbrella. CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. The CFPB will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.”

What is Unfair

Determining whether an act or practice is unfair, under UDAAPs (Unfair, Deceptive, or Abusive Acts or Practices), isn’t necessarily black and white, and specific facts in each case will determine whether an act or practice is unfair.  Although, regulators use three “standards” for identifying unfairness.

An act or practice is unfair when:

  • It causes, or is likely to cause, substantial injury to consumers, (Substantial injury usually involves monetary harm, such as fees paid for services or foregone benefits or denial of access to products or services as a result of discriminatory behavior.) 
  • The injury is not reasonably avoidable by consumers, and (Consumers cannot reasonably avoid injury if the act or practice interferes with their ability to effectively make decisions or to take action to avoid injury.)
  • The injury is not outweighed by countervailing benefits to consumer or competition. (To be unfair, the act or practice must be injurious in its net effects — that is, the injury must not be outweighed by any offsetting consumer or competitive benefits that also are produced by the act or practice.)

What do I Need to do?

  • Review the updated exam manual.  The Exam Objectives list areas that examiners will review when conducting a UDAAPs exam.  Management and policy procedures include, among others, reviewing compliance audits’ scopes to make sure that they include reviews of potential UDAAPs violations, and determining if the institution responds to complaints promptly and whether complaints may raise potential UDAAPs concerns.  The management and policy review process will identify areas for transaction testing.  Transaction testing will include, among others, reviews of marketing, underwriting, reliance on back-end fees rather than upfront fees, and employees and third-parties interactions with customers.
  • Look at all current and existing products and services as if the Equal Credit Opportunity Act would apply to them.  to all products and services the institution offers.
  • Review your products, services, fees, marketing, 3rd party platforms, and any customer facing actions for disparate impact regarding any prohibited basis –  race, color, religion, national origin, sex, marital status, or age.
  • Review any machine learning models and automated decision-making processes done by the institution or third-party that may produce discriminatory results.
  • Review current usage of any product or service offered based on protected classes to see if there is unintended impact against any protected class.
  • Contact Us for if you have questions.  When completing regulatory compliance reviews, our skilled auditors watch for potential UDAAPs violations, and can help your institution avoid regulators calling you unfair.


Please be advised that CSG provides financial services compliance audit and consulting services to our clients.  The services that we provide include certain tasks that may be characterized as “law-related services” under Rule 5.7 of the Rules of Professional Conduct governing lawyers.  Since some of our employees are lawyers with an active bar license but are NOT engaged in the private practice of law, that Rule requires us to make disclosures clarifying that the services we perform may be law-related services, but they are not legal services.  Because they are not legal services, those services and our relationship will not be governed by the Rules of Professional Conduct that guide the client-lawyer relationship, such as rules applicable to privileged communications and prohibitions of conflicts of interest.  Notwithstanding this disclaimer, we will continue to govern our relationship with you using reasonable ethical and professional standards that are expected to meet your expectations.

Leave a Reply

Your email address will not be published.